Labor Market Challenges

Today's release of the October employment report could be the first indication of a break from the stubborn trend of sub-par labor market conditions during the recovery, and a welcome one at that. According to the Bureau of Labor Statistics, the economy created 337,000 jobs last month. Hopefully, increases of this magnitude and more will continue in the coming months, but we have seen temporary blips of high job growth earlier this year that failed to persist. In addition, other indicators of labor market conditions such as increasing average lengths of unemployment, low wage and salary growth, declining benefits, and growing risk of re-employment in lower paying positions continue to highlight the economic challenges workers are facing.

At the heart of the labor market's difficulties is weak employment generation during the last year, which has followed several years of net job losses. Although last month's job increases are a definite improvement over growth in earlier months, the labor market still has 490,000 fewer jobs than at the start of the recession in March 2001. While the share of the employed population typically rose in previous recoveries, it has fallen in this recovery as employment growth has consistently failed to keep pace with population growth. According to figures on job openings from the BLS, the ratio of the number of job openings per 100 unemployed has dropped from close to 80 prior to the recession to less than 40 throughout the recovery.

In addition, the unemployment rate has barely budged. From November 2001, the end of the recession, to October 2004, it declined by a miniscule 0.1 percentage points. In all prior recoveries, it declined on average by almost ten times as much over the same period.

The lack of adequate job growth has left more people unemployed for longer periods of time than in any previous recovery. The average length of unemployment in this recovery is over 18 weeks and the average share of the unemployed who are out of a job and looking for work for more than six months surpassed 20 percent for the first time. Moreover, long-term unemployment has been on the rise again for the past three months.

These numbers reflect why so many Americans, struggling to find work, are dissatisfied with the economy. But those who are employed also face economic hardships. Currently, workers are actually earning less than they were at the end of last year despite increases in productivity that should point to higher wages. Inflation adjusted hourly wages have fallen by 5 cents from December 2003 to September 2004 and were unchanged from a year ago.

Employed workers have also had to deal with the reality of often having to accept lower-paying jobs with fewer benefits than their previous positions offered. Employers have taken advantage of the weak labor market to keep wage growth in check and to reduce employer-sponsored benefits. As a result, those looking for a job are more likely to find employment in lower-paying industries than in higher-paying industries. According to estimates by the Economic Policy Institute, expanding industries are paying substantially lower wages than contracting industries. In June 2004, expanding industries paid 13.1 percent less on average than contracting industries. Those who are looking for a job are more likely to come from a contracting industry and to find a new job in an expanding industry than the other way around. Thus, there is a good chance that they will have on average lower wages when they are re-employed, compared to their previous job.

The trends also suggest that workers often may have to accept fewer benefits. Over the past few years, employers have reduced health insurance and pension coverage. From 2000 to 2003, the share of the population with employment-based health insurance dropped from 63.6 percent to 60.4 percent. Had the share remained constant, an additional 9.4 million people would have had employer-sponsored health insurance in 2003. At the same time, the share of private sector workers with a pension plan, either in the form of a traditional defined benefit plan or a newer defined contribution plan, such as a 401(k), declined from 61.4 percent to 57.3 percent. If the share of private sector workers had stayed the same, an additional 3.8 million private sector workers would have had a pension in 2003.

The economy has had almost three years to recover from the 2001 recession and create a stronger labor market. And yet the improvements for workers over this time have been minimal. With any luck, the stronger job growth numbers in October are only the beginning of a prolonged upward trend in employment creation, and will be accompanied by significant improvements in workers' incomes, benefits and employment opportunities in the months and years to come. After three years of a faltering labor market, it's about time.

  • Change in Temporary Lay-offs and Number of Unemployed Relative to the Labor Force During Recoveries
    Typically, the number of unemployed relative to the labor force and the number of people on temporary lay-offs for business cycle reasons drop in a recovery as the labor market improves. Although both indicators declined in this recovery, it was their smallest declines since the 1960s, when data were first collected.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.c=: BLS; Bureau of Labor Statistics, Historical Data for the “B” Tables of the Employment Situation Release, Washington, D.C.: BLS, and authors’ calculations.
  • Long-Term Unemployment Averages in Recovery
    Declining long-term unemployment is one of the characteristics of a recovery. Not so in this one. Long-term unemployment has remained relatively high and even increased in recent months. As a result, this is the recovery with the longest stretches of unemployment for those out of work looking for a job.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.C.: BLS and authors’ calculations.
  • Job Openings Relative to 100 Job Seekers
    The number of job openings relative to the numbers of people who want a job dropped sharply in the recession, as one would expect, but job openings have grown only marginally in the recovery. The picture is worse when those are included who are marginally attached to the labor force and who are discouraged from looking for a job.
    Source: Bureau of Labor Statistics, Historical Data for the “A” Tables of the Employment Situation Release, Washington, D.C.: BLS; Bureau of Labor Statistics, Job Openings and Labor Turnover, Washington, D.C.: BLS; and authors’ calculations.

Christian E. Weller is a senior economist and Radha Chaurushiya is a policy analyst at the Center for American Progress.